I get this question all the time:
Should I dollar cost average or lump sum invest?
While there has been lots of research into both of these methods, here is what you need to understand about each option-
Dollar cost averaging can be great because it reduces valuation risk.
So even if you buy during periods of high valuation, you also accumulate shares during periods of low valuation.
This reduces risk, but it also minimizes your potential returns.
Lump sum is just the opposite.
Research has shown that long term this is the best option.
This option maximizes your potential returns, but can also be a little riskier due to the fact you could lump sum during a period of high valuation.
Again, research has found that historically speaking lump sum performs better.
But that doesn't necessarily make it the right option for you.
That’s the thing about finance and investing.
Personal finance is personal.
Some people want the peace of mind that dollar cost averaging can provide.
Some people know they are investing for the long term, so lump sum makes sense.
What do I do?
I typically like to have some cash set aside to take advantage of the market when valuations are low.
For example, in 2022, I contributed high amounts of capital as I felt valuations were low, and this has paid off greatly thus far.
But now the market is at all time highs.
When this is the case, I still look for opportunities, but I also typically dollar cost average into my favorite dividend growth ETF, SCHD.
This allows me to still take part in bull runs where the market continues to set new all time highs.
So analyze what your goals are and what your risk tolerance is, and then decide which of these strategies is best for you.
If you missed it..
I recently launched Tickerdata!
Tickerdata is a spreadsheet integration tool that gives you the ability to automatically pull in live stock data for over 70,000 different stocks, 30+ years of historical financial statement data, other key financial metrics, and it can pull in data from over 70+ stock exchanges all across the world, straight into your spreadsheet.
You can access Tickerdata and download my spreadsheets here.
You can also subscribe to the Tickerdata YouTube here, where I'll post tutorials and even more stock analysis!
Lastly…
My contact at Seeking Alpha just reached out to me to let me know they are now running their Spring sale!
The price of Seeking Alpha is now cheaper than the price I originally joined at. If you have any interest in using Seeking Alpha, now could be a good time to join!
You can get the Seeking Alpha discount here:
At the end of every month, I send out a newsletter to my paid newsletter subscribers with a list/spreadsheet of all the dividend stocks that I believe to be currently undervalued.
This sheet was received by nearly 200 dividend investors last month. (Wow!)
If you’d like to receive this sheet at the end of this month, you can sign up here:
That’s all for now! Feel free to respond to this email and let me know of any thoughts you have!
See you next week!
Dividendology